Increase in GST cess to slowdown growth rate: OEM's

This move is expected to dent sales of these vehicle segments. Earlier OEMs had slashed prices of vehicles across the spectrum post the GST announcement to as high as Rs 7 lakh on luxury cars.

ETAuto

Updated: August 30, 2017, 17:19 IST

The luxury car market in India, while still niche in terms of volumes, contributes over 10 percent in value to the total automobile market.NEW DELHI: The Union Cabinet today approved the increase in the maximum rate at which the Compensation Cess can be levied from 15 percent to 25 percent on motor vehicles covering mid-size cars, SUVs and luxury vehicles. This hike on cess will be in addition to the 28 percent basic GST slab applicable on them.

This move is expected to dent sales of these vehicle segments. Earlier OEMs had slashed prices of vehicles across the spectrum post the GST announcement to as high as Rs 7 lakh on luxury cars.

Now the new rates will call for further revision in prices and redrawing of corporate strategies.

Rahil Ansari, Head Audi India expressed his displeasure by saying: “The taxes on this industry are already very high and this increase in cess rate will be detrimental to the luxury car industry as we will be forced to hike our prices to levels higher than pre-GST period. This is bound to adversely impact sales by possibly a double-digit reduction and will consequently reduce revenues for the company, dealers and perhaps also tax revenues for the Government. While the overall impact will still have to be evaluated in some time, we will be forced to redraw our plans for the Indian market based on future projections in this scenario.”

The luxury car market in India, while still niche in terms of volumes, contributes over 10 percent in value to the total automobile market.

While more positive initiatives from the Government are required for this upmarket segment to put it back on track and increase its contribution to the Indian economy, the reversal of GST rates will clearly prove to be a setback.

“We request the GST Council to carefully evaluate the negative impact on this and, if a decision is taken on a 10% cess increase, postpone the implementation for another 6-12 months to evaluate the real impact of the GST on the automobile sector, in particular the luxury segment. This will surely prove that the overall effect with a lower cess percentage of 15% is generating higher tax revenues than expected,” is Ansari’s suggestion.

Meanwhile senior forecasting analyst Gaurav Vangaal of IHS Markits fears that their earlier forecast of a double digit growth by the luxury car segment in CY2017 and 2018 would now dip to a single digit and slow down this market.

Similarly SUVs that were leading the growth in the passenger vehicle segment would also be impacted. Indian consumers in particular have been increasingly showing a tendency to prefer SUVs and crossovers over sedans.

Passing of ordinance to increase the limit of Cess to 25%, on certain class of vehicles, is along the expected lines. What is critical to the industry is when, how much and on what criteria will the cess be increased. Industry has made a representation to the Government and we await the final decision, said Pawan Goenka, MD, M&M.

Jaguar Land Rover India MD says, "I hope India government, GST council will desist from raising cess on mid-size, large cars, luxury cars and SUVs Source text - “The GST implementation on 1st July removed the cascading impact of multiple taxes applicable in the pre-GST regime, which we understand was one of the primary objectives of the Government. The removal of the cascading impact enabled the Industry to reduce prices and benefit the consumer as well as expand the market, which had been declining because of high taxation."

"The expansion in demand would have enabled further investments in local manufacturing and job creation across the supply chain including more people in factories, showrooms, workshops and logistics service providers. We earnestly hope that the Government and the GST Council will give due consideration to this matter and desist from raising the cess and putting a dampener on the positive momentum in demand that the industry had started to witness since 1st July,” he added.

Now sales forecasts will have to be revised as well as the price tags of affected vehicles to factor in the new changes that do not portend good tidings for the industry.

Sponsored Stories

Subscribe to our Newsletters

In order to exhibit the model stretches of national highways as per norms, NHAI plans to develop 57 stretches of NH (1,735 kms) across the length and breadth of the country near each state capital, the NHAI official said. These model stretches will serve as a platform to instruct the highway engineers.